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India beat driven by inventory movement, Europe continues to be a drag

Tata steel reported consol. EBITDA of INR57.4bn, ~22% higher than JMfe of INR47bn. The out-performance was largely on of account Indian operations amidst sustained losses in European operations. India business reported QoQ increase in EBITDA/t to INR16.9 k/t on account of favourable movement in closing inventory. Europe continued to report EBITDA loss of USD178/t vs. loss of USD168/t in 2Q due to delay in relining of BF in Netherlands. The company reported profit of INR5bn during 3Q. Net debt during the quarter increased marginally to INR774bn (up INR4bn QoQ).

Key takeaways from the call are – 1) Expected coking coal price movement in 4Q (a) India: (+)USD10/t (b) Netherlands: (+) USD18/t (c) UK: (+) USD11/t 2) Expected net realisation movement in 4Q: (a) India (-) INR1,000/t (b) Netherlands: (-) £40/t (c) UK (+) £40/t 3) Netherlands BF is likely to be operational by Jan’24 end, Netherland ops is expect to be EBITDA positive by FY25E 4) the company endeavors to cut UK losses by half in FY25E 5) Kalinganagar phased commissioning started with additional 0.7 mt volume expected in FY25E 6) Management endeavour is to make transition to EAF within 4 years. The sector awaits steel price increases in the back drop of recent sharp hikes in coking coal and iron ore costs. In the meanwhile, spot spreads continue to be under pressure. Maintain BUY.

Healthy performance by Indian operations – led by favourable inventory movement: Tata Steel India standalone EBITDA came at INR82.5bn implying a blended EBITDA/t of INR16.9k/t (JMfe INR 14.7k/t), a sequential increase of ~INR3.4k/t primarily on account of favourable movement in closing inventory. PAT came in at ~INR46.5bn vs loss of ~INR62bn during 2Q (due to provisioning worth INR129.5bn for EAF based decarbonisation project and UK restructuring).

Europe losses to trend down in FY25E: TSE reported an EBITDA loss of USD345mn vs loss of USD304mn in 2Q. EBITDA/t stood at negative USD178/t in 3Q vs USD167/t in 2Q. Within european operation TSE UK dragged overall profitability with EBITDA loss of INR16.5bn vs loss of INR13.7bn in 2Q driven by higher other expense. Company plans to continue operating its downstream rolling mills while transitioning to EAF in UK with slabs to be procured from sister mills (i.e. from India or Netherlands). Netherland EBITDA to turn profitable in FY25E. Further, management anticipates cutting the losses from the UK operation in FY25E by half compared to the losses incurred in FY24.

Growth capex on track: Company incurred capex of INR47.1bn in 3Q and INR133.6bn for 9MFY24 and has started phased comissioning of the 5MTPA expansion at Kalinganagar. Further company has commenced production from 2.2 MTPA CRM facility in India (widest CRM in India) and has received approvals from OEM’s for CRC. Further company will close its blast furnance, coke ovens in UK and would invest £1.25bn for scrap based EAF facility in Port Talbot, UK (with government grant of £500mn).

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CIN Number : L67120MH1986PLC038784